Issued July 21, 2009, and posted July 28, 2009
Written by Julie E. Kass; reviewed by Ingrid Brydolf*
On July 21, 2009, the Office of Inspector General of the Department of Health
and Human Services issued a favorable advisory opinion (09-08), addressing a proposal for an institutional patient assistance program (IPAP) that would make certain prescription drugs available to indigent individuals who do not have prescription drug coverage. Under the proposed arrangement, the prescription drugs would be offered to participating hospitals through a bulk replacement program. Patients eligible to participate in the proposed program are U.S. residents who have incomes at or below 250% of the Federal Poverty Level Guidelines and do not have any prescription drug coverage through any private or public insurer or other third-party payor, including federal healthcare programs. Participating hospitals will be responsible for determining whether particular patients meet the eligibility criteria.
The Requestor, a manufacturer of pharmaceuticals, would invite interested hospitals with 500 or more beds to participate, based on their disproportionate share (DSH) percentage ranking. This qualifying methodology will be used to capture those hospitals that serve the largest populations of uninsured, indigent patients, and for whom enrolling each patient separately into existing IPAPs would be administratively burdensome. Over the course of three years, the Requestor would enter into agreements with no more than 100 hospitals to participate in the proposed program. Neither a hospital's past, present, or future volume of referrals, nor a prescription drug's formulary placement would be a factor in the selection of participating hospitals. Participating hospitals will receive no direct compensation from the Requestor. The proposed program does not apply to inpatients or any other patients for whom the participating hospital has a duty to provide drugs. Participating hospitals are limited to receiving a maximum annual limit of $2,000,000 as determined by the wholesale acquisition cost of the provided drugs. Participating hospitals must submit utilization reports and submit to periodic audits showing that drugs received are only used to replace drugs provided to eligible patients. Further, audits will confirm that participating hospitals did not sell program drugs, nor order program drugs to replace drugs for which the participating hospital charged anyone.
The proposed program will be administered by an outside vendor. The Program Administrator will be responsible for the day-to-day operation of the proposed program, including screening hospitals interested in participating, collecting enrollment documents, and verifying the supporting documentation. The Program Administrator will also review and approve the quantities of drugs requested from each participating hospital as well as review utilization reports and audit the hospitals to ensure that drugs are only provided to eligible individuals and otherwise meet program requirements.
In analyzing the arrangement, the OIG reviewed both the anti-kicbkack statute and the patient inducement civil money penalty (CMP) provisions. With respect to the anti-kickback statute, the OIG found that the risks of the IPAP being used as an inducement for the hospitals to purchase or prescribe the Requestor's drugs was low due to a combination of reasons:
- A hospital's eligibility to participate will not be related to the utilization of the Requestor's products, nor conditioned on the rank of the products in the hospital's formulary. Rather, eligibility is based on the size of the hospital and the DHS percentage;
- The drugs merely pass through the participating hospital, which ensure that the participating hospital does not obtain excess stocks of drugs from which they could benefit;
- The participating hospitals will not receive any administrative, dispensing, or other fees for participating in the proposed program. Further, the participating hospitals are prohibited from selling or charging anyone for the drugs;
- The structure of the proposed program limits the ability for the participating hospitals to generate business for the Requestor. Under the proposed program physicians who prescribe the drugs are not paid any fees and the program is not available to patients with prescription drug coverage through any federal healthcare program;
- The program will be transparent, with a written agreement between the Requestor and the participating hospital that covers the drugs to be provided. Further, an independent program administrator will monitor utilization reports and conduct periodic audits of the participating hospitals; and
- The ultimate recipients of the drugs are indigent individuals with no other prescription drug coverage, thus helping to strengthen the healthcare safety net.
Accordingly, the OIG concluded that with respect to the anti-kickback statute, while the proposed program could potentially generate prohibited remuneration, if the requisite intent to induce or reward referrals of federal healthcare programs were present, the OIG would not impose administrative sanctions.
With respect to the CMP provision for inducements to beneficiaries, the OIG found that the provisions were not implicated. The OIG stated that pharmaceutical manufacturers are not "providers, practitioners, or suppliers" for the purposes of the CMP, unless they own or operate, directly or indirectly, pharmacies, pharmacy benefits management companies, or other entities that file claims to Medicare or Medicaid. In the facts presented to the OIG in this advisory opinion request, the Requestor did not meet the definition of provider, practitioner, or supplier. The OIG nevertheless went on to comment that the proposed program would not influence Medicare or Medicaid beneficiaries to choose the participating hospitals since the program does not apply to patients with Medicaid or Medicare Part D drug coverage. In addition, any drugs are provided to the patients by the Requestor and not the hospital, which serves only as a conduit for the IPAP. For the above reasons, the OIG found that the proposed program would not constitute grounds for the imposition of civil money penalties under the CMP.
*The Practice Group Leadership would like to thank Advisory Opinions Task Force members Julie E. Kass, Esquire (Ober Kaler, Baltimore, MD), and Ingrid Brydolf, Esquire (Davis Wright Tremaine LLP, Portland, OR) for respectively writing and reviewing this summary.